The Confederation of British Industry (CBI) expects GDP to grow by just 1.2 per cent this year and 1 per cent next year, down from the 1.6 per cent and 1.5 per cent previously predicted.
The increase in employer National Insurance contributions and rise in National Living Wage in April 2025 resulted in “significantly increased” labour costs for companies, especially in the retail and hospitality sectors.
Businesses are also struggling with higher US tariffs from President Trump’s administration, which have been impacting exports to the US and wider world trade more broadly, as well as hindering investment from multinational companies in the UK.
“This means that products accounting for around 5 per cent of total UK exports will face the new 10 per cent tariff rate, while a further 1 per cent will be left at risk to potential future tariffs (pharmaceuticals). As a result, we expect that the agreement will have a minimal impact for the UK at a macroeconomic level,” it said.
Economic growth in 2026 will be largely driven by household spending, the CBI said, with consumers encouraged to spend more on the back of rising real incomes, lower interest rates, and falling inflation. It warned a weaker jobs market could slow consumption.
It stated that it was ‘vital’ for the government’s soon-to-be-published industry strategy to help boost businesses. “The unpredictable global outlook combined with rising employment costs, gloomy business sentiment, and subdued investment intentions means it’s more important than ever that the government pulls all the levers it can to set the UK on a path to sustainable growth,” Louise Hellem, CBI chief economist, said.
“The Spending Review signalled a down payment on hardwiring the growth mission into government priorities, with targeted investment that will raise the long-term ceiling of the economy,” Hellem said.
It warned that the UK is still missing a “joined-up people strategy” to ensure industry has the skills and the labour needed to go after growth opportunities.
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